Belfast Telegraph

Wednesday 17 September 2014

The real reason why banks are not lending money

How do we square the complaints of borrowing-starved homebuyers and businesses with the insistence of Barclays boss Bob Diamond at Tuesday's select committee hearing that he and other bank chiefs are now lending more than they were? Well, one problem is that even if the banks still active in the UK are lending as much now as they were prior to the financial crisis, a good number of international banks have pulled out of the country.

But there may also be another explanation for lending shortages.

This point comes courtesy of investment bank UBS, which has been looking into who is and isn't lending more to homebuyers.

Why is Lloyds cutting back on lending? Not, as public outrage might have it, so it can finance bonus payments. The real answer is Lloyds' determination to end its reliance on the state: it is racing to repay the billions it took from the special liquidity scheme (SLS) before the end of 2012 deadline that has been set by the Bank of England for the closure of this facility.

Indeed, UBS points out, Lloyds has been able to raise £40bn of new funding over the past 12 months, twice as much as it had hoped. But all of the additional money has gone towards repaying the SLS, rather than funding new mortgage lending.

Now, there will be many people who think it is absolutely correct that Lloyds should be prioritising paring down its dependence on the state, rather than making loans to house purchasers.

Still, this is not going to be achieved without some painful side effects - and the constraints on lending at banks such as Lloyds is one of those.

In a debate clouded by anger about bonuses, this point will no doubt be missed.

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